nep-bec New Economics Papers
on Business Economics
Issue of 2006‒10‒07
twenty-two papers chosen by
Christian Calmes
Universite du Quebec en Outaouais

  1. Why have Corporate Tax Revenues Declined? Another Look By Alan Auerbach
  2. Formal Contracts, Relational Contracts, and the Holdup Problem By Hideshi Itoh; Hodaka Morita
  3. Intangible Capital, Corporate Valuation and Asset Pricing By Jean-Pierre DANTHINE; Xiangrong JIN
  4. Towards a Dynamic Resource-Based View: Insights from Austrian Capital and Entrepreneurship Theory By Nicolai J. Foss; Ibuki Ishikawa
  6. Equilibrium Mode of Competition in Unionized Oligopolies: Do Unions Act as Commitment Devices to Cournot Outcomes? By Constantine Manasakis; Minas Vlassis
  7. Bank profitability and the business cycle By Ugo Albertazzi; Leonardo Gambacorta
  8. On R&D Information Sharing and Merger By Uday Bhanu Sinha
  9. The Impact of the Non-distribution Constraint and Its Enforcement on Entrepreneurial Choice, Price, and Quality By Petra Brhlikova; Andeas Ortmann
  10. Corporate Taxation and Multinational Activity By Peter Egger; Simon Loretz; Michael Pfaffermayr; Hannes Winner
  11. The Construction of Organizational Identity. Comparative Case Studies of Consulting Firms By Alvesson, Mats; Empson, Laura
  12. The Measurement of Firm Ownership and its Effect on Managerial Pay By Jeremy Edwards; Wolfgang Eggert; Alfons Weichenrieder
  13. PRODUCTION TARGETS By Guillermo Caruana; Liran Einav
  15. Migrant Entrepreneurship from the Perspective of Cultural Diversity By Sahin, Mediha; Nijkamp, Peter; Baycan-Levent, Tuzin
  16. Business Process Innovation using the Process Innovation Laboratory. By Møller, Charles
  17. Business Process Risk Management, Compliance and Internal Control: A Research Agenda By Rikhardsson, Pall; Best, Peter; Green, Peter; Rosemann, Michael
  18. Fantasies of leadership - identity work By Sveningsson, Stefan; Larsson, Magnus
  19. Entrepreneurial Decision Making: Examining Preferences for Causal and Effectual Reasoning in the New Venture Creation Process By Politis, Diamanto; Gabrielsson, Jonas
  20. The Growth Opportunities for SMEs? By Bentzen, Jan; Madsen, Erik Strøjer; Smith, Valdemar
  21. Developing a closed-form cost expression for an (R,s,nQ) policy where the demand process is compound generalized Erlang. By Larsen, Christian; Kiesmüller, Gudrun P.
  22. Development and Modernity in Hofstede's Culture's Consequences: A Postcolonial Reading By Fougère, Martin; Moulettes, Agneta

  1. By: Alan Auerbach
    Abstract: The relative constancy of nonfinancial corporate tax revenues as a share of U.S. GDP masks offsetting trends in the ratio of corporate profits to GDP (declining) and the average tax rate (increasing). The average tax rate rose steadily between 1996 and 2003, an increase largely attributable to the importance of tax losses. This rise casts some doubt on the role of tax planning activities in reducing corporate taxes. So, too, does the relative stability of the rate of profit (relative to net assets), which might be expected to have declined had the understatement of profits for tax purposes been increasing.
    JEL: G32 H25
    Date: 2006
  2. By: Hideshi Itoh; Hodaka Morita
    Abstract: We study the holdup problem in repeated transactions between a seller and a buyer such that the seller makes relation-specific investments in each period. We show that where, under spot transaction, formal contracts have no value because of the cooperative nature of investment, writing a simple fixed-price contract can be valuable under repeated transactions: There is a range of parameter values in which a higher investment can be implemented only if a formal price contract is written and combined with a relational contract. We also show that there are cases in which not writing a formal contract but entirely relying on a relational contract increases the total surplus of the buyer and the seller. The key condition is how the investment affects the renegotiation price in general, and the alternative-use value in particular.
    Keywords: holdup problem, formal contract, relational contract, cooperative investment, fixed-price contract, relation-specific investment, renegotiation, repeated transactions, long-term relationships
    JEL: D23 L14 L22 L24
    Date: 2006
  3. By: Jean-Pierre DANTHINE; Xiangrong JIN
    Abstract: Recent studies have found unmeasured intangible capital to be large and important. In this paper we observe that by nature intangible capital is also very different from physical capital. We find it plausible to argue that the accumulation process for intangible capital differs significantly from the process by which physical capital accumulates. We study the implications of this hypothesis for rational firm valuation and asset pricing using a two-sector general equilibrium model. Our main finding is that the properties of firm valuation and stock prices are very dependent on the assumed accumulation process for intangible capital. If one entertains the possibility that intangible investments translates into capital stochastically, we find that plausible levels of macroeconomic volatility are compatible with highly variable corporate valuations, P/E ratios and stock returns.
    Keywords: intangible capital; corporate valuation; stock return volatility
    JEL: D24 D50 G12
    Date: 2006–09
  4. By: Nicolai J. Foss; Ibuki Ishikawa
    Abstract: Over the last two decades the resource-based view (“RBV”) has become dominant in the strategic management field. It has often been observed that the RBV is lacking in the dynamic dimension. For example, processes of building competitive advantages by means of combining existing complementary resources in novel ways are not inquired into. We argue that the RBV may profitably draw on insights in entrepreneurship and capital theory, drawn from Austrian economists as well as Frank Knight, in order to strengthen its dynamic dimension. We link the RBV and Austrian ideas in the context of the theory of complex systems pioneered by Herbert Simon. We draw a number of implications for strategic management from this synthesis, notably into resource value and sustainability of competitive advantage.
    Keywords: Resource-based view; Austrian capital theory; complexity theory; entrepreneurs competitive advantage
    JEL: B53 D21 L23 M1
    Date: 2006
  5. By: Sudhir A. Shah (Delhi School of Economics)
    Abstract: We consider organizations with a single principal and many agents who interact in an environment with the following features -- (a) Nature im-perfectly informs the principal via a state-contingent signal, but not the agents, about the state of the world, (b) the principal selectively shares this information with the agents, thereby endogenously endow-ing them with private information that is coarser than his own, (c) the principal assigns action spaces to the agents, and (d) an agent’s control over the choice from his assigned action space is inalienable. Designing an organization involves specifying (c) and specifying an information dissemination system for implementing (b). Searching for an optimal design involves (1) deriving optimal performance from each design, and (2) comparing designs on the basis of their best performances. Our ex-istence results show the feasibility of performing Step (1) in a large class of cases.
    Keywords: Existence theorems, optimal design, team, organization, principal-agent model
    JEL: C62 D02 D23 D82 L23
    Date: 2006–08
  6. By: Constantine Manasakis (Department of Economics, University of Crete); Minas Vlassis (Department of Economics, University of Crete)
    Abstract: In contrast with previous studies, we postulate that there is no ex-ante commitment over the type of contract (i.e., price or quantity) which a firm offers consumers. In the context of a unionized symmetric duopoly we instead argue that the mode of competition which in equilibrium emerges is the one that entails the most beneficial outcome for both the firm and its labour union, in each firm/union pair, given the choice of the rival pair. Our findings suggest that monopoly unions with risk-averse/neutral members may effectively act as commitment devices driving firms to the symmetric Cournot mode of competition.
    Keywords: Oligopoly, Monopoly unions, Equilibrium mode of competition
    JEL: D43 J51 L13
    Date: 2006–03
  7. By: Ugo Albertazzi (Bank of Italy - Economic Research Department); Leonardo Gambacorta (Bank of Italy - Economic Research Department)
    Abstract: An important element of the macro-prudential analysis is the study of the link between business cycle fluctuations and banking sector profitability and how this link is affected by institutional and structural characteristics. This work estimates a set of equations for net interest income, non-interest income, operating costs, provisions, and profit before taxes, for banks in the main industrialized countries and evaluates the effects on banking profitability of shocks to both macroeconomic and financial factors. Distinguishing mainly the euro area from Anglo-Saxon countries, the analysis also identifies differences in the resilience of the respective banking systems and relates them to the characteristics of their financial structure.
    Keywords: bank profitability, economic cycle, macro-prudential analysis
    JEL: C53 G21
    Date: 2006–09
  8. By: Uday Bhanu Sinha (Delhi School of Economics)
    Abstract: The paper deals with the issue of information sharing in a Cournot duopoly by an innovating firm in the face of a merger with its rival. The innovating firm would share information about the cost realization with its rival provided the market size is relatively small or, the R&D technology is relatively more efficient in a medium market size. However, in a large market, or in a medium market size with less efficient R&D technology, the innovating firm does not share information with its rival. We also show that the social welfare may be higher under incomplete information regime.
    Keywords: Information sharing, market size, R&D, merger and welfare.
    JEL: L13 O32
    Date: 2006–08
  9. By: Petra Brhlikova; Andeas Ortmann
    Abstract: We study the conditions under which it is rational for a representative entrepreneur to start a nonprofit firm. Taking as point of departure a model of entrepreneurial choice proposed by Glaeser and Shleifer (2001), we analyze consequences of weak enforcement of the non-distribution constraint on entrepreneurial choice and price and quality of the product. We find that the nonprofit organizational form becomes unequivocally more attractive to entrepreneurs if enforcement of the non-distribution constraint is weak. We also nd that the quality delivered by nonprofit firms is lower under weak enforcement than that of the nonprofit firm under strict enforcement, but higher than the quality delivered by a for-prot rm. We discuss the implications and limitations of our results.
    Keywords: Entrepreneurial choice, Nonprofit, For-profit, Non-distribution constraint, Enforcement
    JEL: D2 L2 L31 K42
    Date: 2006–07
  10. By: Peter Egger; Simon Loretz; Michael Pfaffermayr; Hannes Winner
    Abstract: This paper assesses the impact of corporate taxation on multinational activity. A numerically solvable general equilibrium model of trade and multinational firms is used to incorporate the following components of corporate taxation: parent and host country statutory corporate tax rates, withholding tax rates, and parent and host country depreciation allowances. We account for their differential impact under alternative methods of double taxation relief (i.e., credit, exemption, and deduction). The hypotheses regarding the effects of changes in the tax parameters are investigated in a panel of bilateral OECD outbound stocks of foreign direct investment (FDI) from 1991 to 2002. For this, we compile annual information on taxation to construct the largest existing panel of tax parameters at the bilateral level based on national tax law and bilateral tax treaties. Our findings indicate that the parent country's statutory corporate tax rate tends to foster outward FDI, whereas the host country's statutory corporate and withholding tax rates are negatively associated with outward FDI. Depreciation allowances exert a significant impact on FDI, as hypothesized.
    Keywords: corporate taxation, foreign, direct investment, panel econometrics
    JEL: C33 F21 F23 H25 H73
    Date: 2006
  11. By: Alvesson, Mats (Department of Business Administration, School of Economics and Management, Lund University); Empson, Laura (Saïd Business School)
    Abstract: Despite the great interest in organizational identity, empirical studies are relatively rare. As yet, there have been no major comparative case studies of this phenomenon. Single case studies have yielded in-depth understanding of the process of identity construction in specific organizations, but very little is known about how organizational identity is constructed more generally. This paper explores how organizational identity is constructed in four very different firms within the consulting industry. The study suggests four broad dimensions that organizational members refer to in constructing their organizational identity: knowledge work, management and membership, personal orientation, and external interface. We identify multiple themes within these broad dimensions of identity construction and highlight several broader identity-related issues, specifically: the extent to which shared ideas of a distinct organizational identity are present or absent in organizations, the relationship between organizational identity and the individual, and the balance of reality and fantasy in identity construction.
    Keywords: Organizational identity; Consulting; Professional service firms
    Date: 2006–03–23
  12. By: Jeremy Edwards; Wolfgang Eggert; Alfons Weichenrieder
    Abstract: This paper uses German evidence to address two questions about corporate governance. The effects of ownership on corporate governance have received much recent attention, but very little of this has been devoted to the appropriate way to measure firm ownership. The results of this paper show that the conclusions reached about the effects of ownership on corporate governance can depend critically on the particular ownership measure used, and that the widely-used weakest-link principle is wholly unsatisfactory as a means of dealing with the issues raised by pyramid ownership structures. The paper also shows that greater ownership concentration typically weakens the link between managerial pay and firm profitability. This is inconsistent with the hypothesis, emphasised in the recent literature on the USA, that large owners are a complement to, rather than a substitute for, such a link.
    JEL: G32 L25 M52
    Date: 2006
  13. By: Guillermo Caruana; Liran Einav (CEMFI, Centro de Estudios Monetarios y Financieros)
    Abstract: We present a dynamic quantity setting game, where players may continuosly adjust their quantity targets, but incur convex adjustment costs when they do so. These costs allow players to use quantity targets as a partial commitment device. We show that the equilibrium path of such a game is hump-shaped and that the final equilibrium outcome is more competitive than its static analog. We then test the theory using monthly production targets of the Big Three U.S. auto manufacturers during 1965-1995 and show that the hump-shaped dynamic pattern is present in the data. Initially, production targets steadily increase until they peak about 2-3 months before production. Then, they gradually decline to eventual production levels. This quealitative pattern is fairly robust across a range of similar exercises. We conclude that strategic considerations play a role in the planning phase in the auto industry, and that static models may therefore under-estimate the industry's competitiveness.
    JEL: C72 C73 D43 L13 L62
    Date: 2006–01
  14. By: Diego Prior; Jordi Surroca; Josep A. Tribo
    Abstract: Drawing on stakeholder-agency theory and the earnings management framework, we explore the relationship between discretionary accounting accruals and corporate social responsibility. We hypothesize a positive connection between corporate social responsibility and earnings management. We argue that managers may satisfy the interest of stakeholders as an entrenchment strategy once these managers have followed earnings management practices, thereby damaging the long-term interests of shareholders. Also, we expect that the positive connection between corporate social responsibility and financial performance is negatively moderated when combined with earnings management practices. We empirically demonstrate our theoretical contention making use of a database comprising of 599 firms from 32 different nations for the period 2002-2004.
    Date: 2006–09
  15. By: Sahin, Mediha (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics); Nijkamp, Peter; Baycan-Levent, Tuzin
    Abstract: The phenomenon of migrant entrepreneurship refers to business activities undertaken by migrants with a specific socio-cultural and ethnic background or migrant origin. The studies on migrant entrepreneurship in both the US and Europe have recognized the significant share of immigrants in SME activities. In the context of migrant entrepreneurship several scholars have highlighted the impact of different migrant group cultures on entrepreneurship. They emphasize the importance of values like social or business attitude, close family and religious ties and trust, which enable some immigrant groups to compete successfully in business. Against this background, the aim of this paper is to review and evaluate migrant entrepreneurship from the perspective of cultural diversity. The paper investigates key socio-economic and cultural aspects of migrant entrepreneurship and next addresses different migrant group entrepreneurs in the Netherlands in order to compare the differences between various migrant groups and to explore cultural diversity in migrant entrepreneurship.
    Keywords: Entrepreneurship; Migrant entrepreneurship; Cultural diversity
    JEL: A13 E24
    Date: 2006
  16. By: Møller, Charles (Department of Management Science and Logistics, Aarhus School of Business)
    Abstract: This paper proposes a research program on Business Process Innovation: Towards Global Supply Chain Intelligence. Few words are more ubiquitous in business or society today than “innovation”. This reflects that businesses are striving for ways to survive and thrive in an increasingly complex and connected world (IBM 2006). <p> Most industrial supply chains today are globally scattered and nearly all organizations rely on their Enterprise Information Systems (ES) for integration and coordination of their activities. In this context innovation inevitably is driven by advanced information technology. <p> Organizations today are required not only to operate effective business processes but they also need to accommodate to changing business conditions at an increasing rate. Consequently the ability to develop and implement new processes driven by the Enterprise Information Systems is a central competence in most industries, and furthermore it is a critical practice for a global enterprise. <p> The next practice in Global Supply Chain Management is Business Process Innovation. Business Process Innovation is the transformation of a global supply chain driven by a new advanced Enterprise Information Systems technology. This technology holds the potential to “close the control loop”, but until now few organizations have managed to unleash the full potential of global supply chain intelligence. Thus, there is an emerging need for managing the transformation and for new approaches that will lead to robust global supply chains. <p> This paper presents a conceptual framework for Business Process Innovation. A research proposal based on five interrelated topics is derived from the framework. The research program is intended to establish and to develop the conceptual framework for business process innovation and to apply this framework in a global supply chain context. These topics are presented in the following sections, but first the background for the program is discussed.
    Keywords: No keywords;
    Date: 2006–07–24
  17. By: Rikhardsson, Pall (Department of Management Science and Logistics, Aarhus School of Business); Best, Peter (Faculty of Business); Green, Peter (The University of Queensland Business School); Rosemann, Michael (Faculty of Information Technology)
    Abstract: Integration of risk management and management control is emerging as an important area in the wake of the Sarbanes-Oxley Act and with ongoing development of frameworks such as the Enterprise Risk Management (ERM) framework from the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on an inductive methodological approach using literature review and interviews with managers engaged in risk management and internal control projects, this paper identifies three main areas that currently have management attention. These are business process risk management, compliance management and internal control development. This paper discusses these areas and identifies a series of research questions regarding these critical issues
    Keywords: Risk management; Internal control; Business processes; Compliance; Sarbanes-Oxley Act; ERP systems; COSO; COBIT
    Date: 2006–09–18
  18. By: Sveningsson, Stefan (Department of Business Administration, School of Economics and Management, Lund University); Larsson, Magnus (Department of Psychology, Lund University, Box 213, SE-221 00 Lund, Sweden)
    Abstract: In this paper we investigate and explore middle managerial talk and practice connected to expectations of leadership in a planned corporate cultural change. In the paper we follow how a middle manager positions himself in relation to the contemporary discourse on leadership. In particular we discuss how managerial claims of leadership in practice seem inconsistent with the actual practice. Based on these findings we suggest that leadership ideas could be seen as a kind of fantasy related to identity work more than actual practice. We investigate this fantasy in terms of its various sources and try to relate the fantasy construction to management education and to the planned cultural change in particular.
    Keywords: Leadership; managerial work; identity work; identity process; fantasy
    Date: 2005–06–29
  19. By: Politis, Diamanto (Department of Business Administration, School of Economics and Management, Lund University); Gabrielsson, Jonas (Department of Business Administration, School of Economics and Management, Lund University)
    Abstract: A growing body of studies emphasizes the discovery of opportunities and the decision to exploit them as the essence of entrepreneurial activity. Following this stream of research, we present a study that examines entrepreneurs’ preferences for causal and effectual reasoning in the new venture creation process. The dominating view is that entrepreneurial decision making to a large degree varies in response to the unique situational context. In contrast, we are in this paper particularly interested to what extent individual career experiences and career motives makes entrepreneurs in favour of one decision making logic over another. From this point of departure we develop hypotheses of the expected influence of career experience and career motives on entrepreneurs’ preferences for causal and effectual reasoning. Statistical analysis on a sample of 291 Swedish entrepreneurs give ample support for the argument that entrepreneurs’ career experience and career motives have a significant influence on entrepreneurial decision making. The finding suggests that future research into entrepreneurial decision making should include career experience and career motives as contingency variables. Furthermore, the article provides an attempt to operationalize entrepreneurs’ preference for causal and effectual modes of reasoning. To our knowledge no such operationalizations exists.
    Keywords: entrepreneurial decision making; career experience; career motives; effectuation
    Date: 2006–09–19
  20. By: Bentzen, Jan (Department of Economics, Aarhus School of Business); Madsen, Erik Strøjer (Department of Economics, Aarhus School of Business); Smith, Valdemar (Department of Economics, Aarhus School of Business)
    Abstract: The extensive empirical literature on the validity of Gibrat’s law does not in general verify the law as it finds that firms’ growth rates are negatively correlated with both firm size and age. However, some studies find that Gibrat’s law holds for sub-samples of firms such as large firms or firms belonging to special industries. It has been pointed out that these results are due to the fact that the likelihood of firm survival for natural reasons is positively related to firm size and age. This study uses a relatively large and representative sample of Danish firms to evaluate the validity of Gibrat’s law for different kinds of firms over the period 1990 - 2003. In contrast to the majority of earlier studies our analysis corrects for the bias in the estimations by using variables related to the survival of small firms.
    Keywords: Market Structure; Firm Strategy; Market Performance;
    JEL: L10
    Date: 2006–09–27
  21. By: Larsen, Christian (Department of Management Science and Logistics, Aarhus School of Business); Kiesmüller, Gudrun P. (Faculty of Technology Management)
    Abstract: We derive a closed-form cost expression for an (R,s,nQ) inventory control <p> policy where all replenishment orders have a constant lead-time, unfilled demand is backlogged and inter-arrival times of order requests are generalized Erlang distributed
    Keywords: Inventory control; Compound renewal process; Generalized Erlang distribution;
    Date: 2006–06–20
  22. By: Fougère, Martin (Swedish School of Economics and Business Administration); Moulettes, Agneta (Department of Business Administration, School of Economics and Management, Lund University)
    Abstract: Along with an increasingly globalized business environment and a strongly held corporate belief that the world can be rationally managed, the last two decades have witnessed a growing demand for normative models dealing with cross-cultural management issues. This trend has allowed cross-cultural management to establish itself as a significant research field, with much of the initial inspiration coming from Hofstede and his cultural model from 1980. In this paper, our intention is not to merely repeat the already formulated objections to the latter model concerning its ontology, epistemology and methodology, but rather to focus on the very words of Hofstede himself in his second edition of Culture’s Consequences (2001), which he wrote partly in order to address the criticisms that his work received in the previous twenty years and to demonstrate that his findings are still valid. Our main aim here will be to explore how the discourse generated by Hofstede through his model and his comments on his results constructs the world by dividing it especially according to dichotomies of 'development'/'underdevelopment' and 'modernity'/'tradition'.
    Keywords: Critical management studies; cross-cultural management; discourse analysis; Hofstede; postcolonialism.
    Date: 2006–03–17

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